Concerning Guidelines of the Market Definition - Report Example

Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law, OJ 1997 C 372/5 Table of Contents Introduction 3 Discussion 3 Concerning Guidelines of the Market Definition 5 Conclusion 9 References 11 Introduction Competition Law has been in existence within the market since the beginning of the 20th century. The enactment of this law by the government of various nations has been done with the prime intention of facilitating a healthy competition within the market both from a domestic as well as international perspective. This law was passed to ensure that national as well as international corporations are involved in fair and transparent competition. The law has also been called out by multiple names such as ‘Anti-trust Law’ in US, and ‘Anti-monopoly Law’ in China. Although being a global market regulatory law, its policies for the European Union market differs in comparison to that of US1. The objective of this discussion will be regarding the effective evaluation of competition law specifically within the markets of European Union. The discussion will also reflecting and understanding the notice as provided by the European Commission for defining the relevant market for the purposes of Community Competition Law. Discussion The objective of this notice is to provide guidelines regarding the application of the concepts of relevant products and the market geography under the Community Competition Law by the European Commission. As for the market definition is concerned, it can be explained in general terms as marketing tool which plays a significant role in terms of defining the boundaries of competition between the companies both national as well as international. Market definition also helps the commission in terms of framing the market policies for ensuring misuse of the market power held by the firms US 2 Adding to that, the market definition as projected by the European Commission will gradually help the commission in terms of identifying the competitive constraints within the players present within the market. It also helps the companies in terms of identifying their competition both from the product as well as the geographic perspective. For instance, XYZ is a food manufacturing brand carrying out its marketing process within a specific geographic area. If seen from a competitive perspective, there will be multiple other food manufacturing players within that specific geographic location which will also be producing the same type of product category and will compete with XYZ Company in terms of multiple factors such as price, quality, quantity, advertisement and market share attainment US3. Thus, it is common that all these players will gradually attempt to use unfair techniques so as to gain greater competitive advantages. At such instance, the market definition concept and the competitive law comes into the force. The law makes sure that players maintains a uniformity in terms of pricing, minimum standards and availability and thus ensuring an even competition. Based on guidelines mentioned in the market definition, significant amount of information regarding the market share attained by the companies can be gathered and thus further helping in terms of determining the dominator of the market. An appropriate market definition is also essential in terms of effective implementation of the ‘Article 85’ of the Treaty a based on which multiple agreements that might affect the trade practise between the member states can be prohibited. The impact of the negative factors on the trade practises within the common market can also be prohibited by the inaction of this ‘Article 85’4. The prime intention of the European Commission has always been towards making its policies and decision making process as transparent as possible. The increased level of transparency will be like an advantage for both the companies as well as the European Commission. It is mostly due to the transparency that the companies and its advisors can identify the instances where the commission can raise issues. Based on such identified instances, the companies can act towards implementing preventive measures specifically in terms of establishing joint ventures and structuring agreements (EN. 2007). Concerning Guidelines of the Market Definition The mentioned guidelines for defining an effective market mostly comprises of the following facts which have been mentioned as under. Product Guidelines For the establishment of a relevant product market, it is necessary that the market should comprise of those products and services that are suitable for the customers and that can be monetarily exchangeable depending on its characteristics, pricing and proposed usage5. Geographic Guidelines In terms of the geographical guidelines for defining a market, it is necessary that the process of demand and supply of products and services taking place within that specific geographical area. Adding to that, the competitive conditions and factors should be completely homogeneous for every single player within that specific geographic location. Moreover, it is also mandatory that the competitive factors and the homogeneousness of one specific geographic location should be different from other geographic location6. By taking into consideration of the relevance of both the product as well as the geographic market, the commission finally comes to its definition of defining a relevant market place. Moreover, in accordance to the oriental definition of the notice, the definition of the relevant market place is mentioned in the paragraph 7 and 8 of the notice7. Apart from the above mentioned facts, the concept of defining a relevant market place finds significant level of association with the points as mentioned in the Community Competition Law. Multiple instances can be projected in this provided context. One such instance being the ‘Community’s Merger Control Act’ under which, multiple provisions exists for regulating the structural change within the supply process of products and services within an existing market space8. The reason is that, ineffective structural change might result in creation of inappropriate dominating players within that specific market place which in turn might hamper the effective competition. The Community Competition Law also describes the dominant market holder as a company which holds the largest share of the market keeping other factors such as barriers to entry of new entrants and customer’s reaction as constant9. A similar law abiding procedure for being at the dominating market position has been mentioned in the article 86 of the Treaty to firms that for large brands which are generally formed by the collaboration of two or more sub brands. The Commission also holds the right of bringing down any such dominating company if it finds them liable for any sort of law abuse. As already described above, the necessity for defining the criteria for a relevant market space is for behavioural trend analysis of the market. Depending on the nature and the type of the competition issue, the result of the methodology might vary accordingly10. Principles of Market Definition There seems to be four types of associated principles which might find its applicability in terms of defining the market. The detailed descriptions of all the four type of marketing principles have been mentioned as under. Competitive Barriers In general, majority of the firms witness constraints in terms of demand, supply and level of competition. Moreover, by bringing about alteration in the demand levels of goods and services from a specific supplier, constancy can be kept in the pricing decisions made by the suppliers, thus shifting the bargaining power in the hands of customers. The legal obligation regarding the competitive barriers has been mentioned in between the 20th and the 23rd paragraph of the notice. These competitive barriers are generally considered during the evaluation phase of the competitive analysis11. Substitution of Demand As per European Commission, substitution of demand has been seen as the available range of products within the market which are considered as substitutes if seen from a customer’s point of view. The entire process is considered to be like an experiment where certain small scale changes are made within the prices of the likely goods with the prime intention of determining the reaction of the customers towards it. Thus, the substitution of the demand provides clear evidence for definition of a relevant market12. In a conceptual manner, the process of demand substitution takes into consideration of the fact that apart from just a specific product and its area of selling, all other products and their areas of selling will also be taken into consideration which might effect the pricing of that specific product. Depending on this fact, the commission can figure out that whether the customers will switch to other readily available product types within the same geographic location or they will stick to that product but might change the area of purchase13. Substitution of Supply The concept of supply substitutability must also be taken into consideration while defining a relevant market space. However for the effective implication of the supply substitution concept is it necessary that the market situation within that specific moment finds its similarity to that of the demand substitution scenario. Adding to these, the supply substitution also demands that the suppliers must have the capability for switching towards alternate product manufacturing and subsequent marketing without the incurrence of any sort of risk arising due to the small scale price change of the manufactured products14. Potential Competitors The concept of potential competitor might not always be taken into consideration while defining the market. This is mainly due to the reason that the necessary factors on which the potential competitor concept depends mostly includes the entry level conditions. However, being a crucial aspect, its utility gets implicated in certain stages of defining a relevant market space. If seen from a generalised point of view, once the market position of a company gets determined, it might raise concerns for the competitor companies that at that specific point of time will exist within that market space15. Example One common example to this entire above mentioned context is the implication of the Article 345 of the ‘Treaty on the Functioning of the European Union (TFEU)’ according to which the European Union does not possess and right or jurisdiction capabilities in terms of regulating the property law. The Article also describes that the right to regulate the property law only belongs to the Member States. However there seems to lay single legislation through which the European Union can regulate the property law. This proves that the statements within this Article 345 have not been effectively defined and thus not much conclusion can be drawn from it16. Conclusion Through the effective evaluation of the above discussed facts multiple conclusive points can be drawn regarding the effectiveness of the Community competition law, OJ 1997 C 372/5for the European Union in terms of defining a relevant market space. Adding to that, the above descriptions also states about the guidelines mentioned in the Community competition law based on which a relevant market is defined. These regulations also help in terms of facilitating a healthy competition between the companies functioning within a specific market space and thus prevent unfair competitive practises and abuse of market power. References Akkermans, B. & Ramaekers, E. 2010. Article 345 TFEU (ex Article 295 EC), Its Meanings and Interpretations. European Law Journal, Vol. 16, No. 3, pp. 292–314. EN, 2007. Guidelines On The Assessment Of Non-Horizontal Mergers Under The Council Regulation On The Control Of Concentrations Between Undertakings. Commission Notice, pp. 1-25. International Competition Network, 2007. Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law. Competition, pp. 1-16. Read More